If you've been house hunting and keep getting told you need 20% down plus a spotless credit score, the Federal Housing Administration wants a word.
FHA loans, which are backed by the government and aimed at first-time and lower-income buyers, come with some of the friendliest requirements in the mortgage world.
And a few recent tweaks have made them slightly more forgiving.
First, the big one: you can often get in with just 3.5% down.
On a $300,000 home, that's $10,500 instead of the $60,000 a conventional loan might demand.
Scores between 500 and 579 can still qualify, but you'll need 10% down, and many lenders set their own higher floors anyway.
Your credit history matters, but it's not the whole story.
FHA lenders generally want to see at least two tradelines — credit cards, car loans, student loans — with a year of history.
You may need to wait one to two years, depending on the type.
A foreclosure typically means a three-year wait.
FHA guidelines generally allow total monthly debt payments up to 43% of your gross income, and sometimes higher with compensating factors like cash reserves or a strong payment history.
That includes your future mortgage, car payment, minimum credit card payments, and student loans.
If your car note is eating you alive, paying it off before applying can do more for your approval odds than almost anything else.
You'll also need mortgage insurance, and this is where FHA loans get less attractive.
You pay an upfront premium equal to 1.75% of the loan amount, which is usually rolled into the loan.
Then there's an annual premium, typically 0.55% of the loan balance, split across your monthly payments.
On a $290,000 loan, that's roughly $130 a month.
Unlike conventional mortgage insurance, FHA's version usually doesn't fall off until you refinance or sell, unless you put at least 10% down.
The home itself has to pass an FHA appraisal.
Peeling paint, a broken handrail, a missing outlet cover — small stuff can stall your closing.
Sellers sometimes balk at this, which can hurt you in a competitive market.
It's worth asking your agent to flag listings where the seller is already FHA-friendly.
One more rule that trips people up: FHA loans are for primary residences.
You can't use one to buy a rental property or a vacation home.
And if you already have an FHA loan, you generally can't have two at once, though there are exceptions for job relocations and growing families.
If your credit is in the 600s, your savings are modest, and you're buying a home you'll actually live in, an FHA loan is often the most realistic door into homeownership.
Just run the numbers with the mortgage insurance baked in.
A lower rate on a conventional loan can beat FHA even with a bigger down payment, so compare at least two lenders side by side.
The bottom line: FHA requirements are generous, not free.
The 3.5% down payment is real, but so is that monthly insurance premium, and it sticks around longer than most buyers expect.
Final Thoughts
Do the math on the full five-year cost before you sign — the cheapest path in isn't always the cheapest path to stay.